Finding new recruits is a long and expensive process. According to the 2017 Talent Acquisition Benchmarking Report from Society for Human Resource Management (SHRM), the average time it takes to hire an employee is 36 days, and it costs an average of $4,425. Even after HR spends all that time and money searching for the right candidate, there’s no guarantee that it’ll pay off and the person will end up being the right fit or staying with the company.
The Benefits of an Employee Referral Program
Here’s where an employee referral program can help. By asking employees to refer potential candidates for job openings, a company can save time and money. This type of program can also increase the odds of a successful hire — someone who fits well with the organization and works there for a significant duration.
“It's a good idea to ask employees to refer friends if you're clear about the job opening's work requirements and the kind of values you're seeking in a team member,” said Laura Handrick, contributing HR professional at Choosing Therapy, a website that provides content about mental health topics. “Your existing team members may have colleagues in their social network with similar work skills and ethics.”
As an added benefit, your employees will likely be more engaged when they’re among friends.
“Research from large organizations such as Gallup shows that employees are happier and more productive when they have friends at work,” said Handrick. “Inviting your existing team members to recommend people they'd like to work with can improve your teamwork and productivity. Plus, they'll do the recruiting and ‘selling’ for you. That saves time.”
If you’d like to implement an employee referral program at your company, here are nine steps for rolling one out successfully.
1. Decide how to structure your employee referral program.
First, you’ll need to determine how you’ll structure your employee referral program. Here are some things to consider when you’re just getting started:
- How much will you pay employees for their referral?
- At what point will they be paid?
- Will they be paid when the person is hired or after the person has been there for a certain amount of time?
- How are you going to publicize the program?
- How will you run it from a practical standpoint?
- Who will answer questions about the program?
But don’t get too bogged down with the details and make it overly complicated. Michael Roche, Head of Recruitment Partnerships at Educating Abroad, a website that helps people find teaching jobs internationally, said it’s important to create a simple employee referral program that’s easy to run.
“Try where possible to automate it using a referral tool to track and monitor progress and provide reports,” Roche said. “If you don’t have the budget for a paid tool, then ensure that the member of your team who is responsible for creating it is given enough time to [work on and] deliver it.”
Roche stressed one more factor that’s absolutely crucial: “Make sure employees don’t have to jump through lots of paperwork hoops [to use it],” he said.
2. Offer an employee referral bonus.
For an employee referral program to be effective, it has to be enticing to employees. Otherwise, they likely won’t care enough to participate.
According to Orin C. Davis, Principal Investigator at workplace consulting firm Quality of Life Laboratory, you should offer a minimum of $500 per hire. Depending upon how much hiring your company does, Davis said that “it can be reasonable to offer rewards of up to $5,000 to $50,000 for very high-level positions that are hard to fill. That’s still a fraction of what you would pay an executive search firm.”
One caveat here: Davis noted that for the highest-level searches you probably wouldn’t want to rely solely on an employee referral program, and in cases like these you should still retain a search firm as well.
And the bonus shouldn’t necessarily only go to the employee who referred the person who ultimately gets hired. Davis said you could also give small rewards to people who refer candidates that make it to the final-round interview and would have been viable hires. For instance, you could give them a $25 gift card, since the employee still saved you from paying a recruiter with their referral.
3. Draw up an employee referral contract.
You’ll need to come up with an employee referral contract that outlines the exact terms of your program and is signed by the employee before the referred candidate is hired, said Tim Reitsma, Sales and Operations Strategist at People Managing People, an online community for business leaders and managers.
The contract should clearly define awards and incentives for referring new hires; without it, Reitsma said, there could be false claims made about bonuses and rewards. Additionally, vague language and unclear communication about the specifics of your program could easily lead to confusion and resentment down the road, on both the employee and employer sides. Having a contract in place with clearly defined terms can prevent any possible detrimental miscommunication.
“You should include that the employee referral must be a candidate that meets the skills and qualifications of the job description. Also, make sure the candidate properly submits an application with their resume and cover letter,” Reitsma said. “The employee referring the applicant must sign off on all of your terms before receiving the referral bonus.”
At the very least, the employee referral contract should including the following, according to Reitsma:
- The referred applicant must meet the qualifications and skill requirements of the position as outlined in the job description.
- The referred applicant must not be a previous employee of the company to which they’re applying.
- The referred applicant must not currently be involved in that company’s recruiting process.
- The referred applicant should not apply to any job position in that company on their own.
4. Educate your employees.
Before rolling out your employee referral program, anticipate questions employees are going to ask about it and be prepared with the answers. Roche said that you can expect to receive a lot of questions about how the program works, especially when you initially launch it. He advised creating an FAQ sheet in advance to address them — including any questions that may arise about the technology.
“If you are using an automated referral tool, familiarize yourself with it and test it thoroughly to make sure it works,” he said.
Additionally, educate your employees about all aspects of your program. Share with them the details about the ideal candidate you’re looking for, goals for the program, and information about how they can effectively recruit candidates, said Kosha Shah, Marketing Specialist at employee time management app Time Card. Some possible ways to do this are through recruitment videos, internal company-wide emails, and content on your organization’s intranet site.
5. Roll out the employee referral program in a big way.
Once you’ve created your employee referral program, it’s time to roll it out — and this should be done with a lot of fanfare to get everyone’s attention. Roche suggested that the highest-level executive in the company, such as the president or CEO, should be the one to make the big announcement.
“It needs to be seen as something of a spectacle and that everyone including senior management is going to participate in and monitor it,” Roche said.
And, for maximum impact, make the occasion itself a special one. “If possible, tie it in with a company anniversary or yearly outing,” he suggested.
6. Keep mentioning it even after rollout.
So you’ve spent time thoughtfully creating your program, and announced and implemented it. But there’s still more to do; a program can easily lose momentum if employees forget about it. That’s why you need to continue bringing it up even after the initial rollout.
“I've seen so many employee referral programs that launch with a bang, and then fizzle out because employees forget about it or get mired in forms, payments are delayed, and the hiring team fails to communicate with the staff,” said Handrick. “If referrals are part of your hiring process, build a plan for communicating before rollout, during rollout, and with every hiring win.”
This continual communication will keep the program top-of-mind for employees, and help ensure that they remain engaged with it.
7. Follow-up with employees who made referrals.
If an employee refers a candidate, follow-up with that employee even if you don’t end up hiring their referral.
“To keep your employee referral program alive, you can't drop the ball when an employee refers a candidate without risking resentment from the referring team member,” said Handrick. “That's because they have invested their reputation in recommending that person and will feel insulted that you didn't bother to follow-up.”
A little appreciation will go a long way. Thank your employee for their time and effort, and if their referral didn’t ultimately land the job this time, let them know that you hope they’ll still participate in the program again in the future. If you want to go the extra mile, you could also ask them what their experience of the referral process was like, both positive and negative, to help you continue to improve your program.
8. Recognize great referrals — and not just with money.
Another valuable incentive, aside from an employee referral bonus, is praise. Along with following-up with an employee and giving them a financial reward, praise them publicly when you make the hire.
“In weekly memos, there should be high-fives to people who have made a successful referral,” Davis said.
9. Review and assess.
An employee referral program is not something you can put in motion and then forget, expecting it to run itself. Instead, continue to look at how well it’s working by setting measurable recruitment goals to track and reevaluate over time, advised Shah. This includes viewing the number of referrals that have come in, the quality of those referrals, the time and cost to hire the referral, and how many people accepted your offers. Use this data to see what areas need improvement and make any necessary changes.
Building an Effective Referral Program
An employee referral program can help you reduce costs and minimize the time it takes to make a new hire. In fact, if you do it right, you can increase productivity and engagement, and spread goodwill throughout your entire company.
For example, Roche said, your employee might tell a friend they work for the best company and say that the friend should come join them. They refer their friend who then gets hired, and the employee is rewarded. Because they enjoy the reward, they then want to make another referral. Employees who were not initially interested in the program see their colleague being rewarded and would like to be, too. In turn they start telling their friends about their company and referring them for job openings as well.
“[Over time], you start to build a culture of ‘We work for the best company,’” Roche said, “which has a positive impact on internal relations and productivity, [as well as on] external public relations.
An employee referral program will drive employee engagement and productivity, and save you time and money. But it will also deliver a priceless reward that can’t be quantified — a company culture that employees are proud to be a part of, so much so that they passionately spread the word about the work you’re doing and encourage their friends and professional connections to join them and be a part of it. Through a well-run referral program, your employees will aid in your recruiting process and facilitate the hiring of valuable new employees, who will then further contribute to the success of your organization.